Posts Tagged ‘food price’

If you look at only the official account (left), the price of dal has been comfortable, but the consumer experience (right) tells a quite different story.

How urgently our national food price measuring methods need a complete overhaul is best shown with the example of a staple everyone is familiar with: arhar or tur dal.

Price indexes or indices are useful because they help us view the change in the price of a particular food staple over time, not the price itself, but change in price when taken from a base year or month. Price records are useful because they log the price (per kilo for retail consumption) of a food staple in a week or month.

The three ministries concerned with food prices update their indices or actual price reports every month or week. These are: the Department of Consumer Affairs of the Ministry of Food and Consumer Affairs, the Directorate of Economics and Statistics of the Department of Agriculture and Cooperation of the Ministry of Agriculture, and the Labour Bureau of the Ministry of Labour. In addition, there is the wholesale price index prepared by the Office of the Economic Adviser, Ministry of Commerce.

Usually, movements and trends in these indices and price logs are examined by themselves, and conclusions are drawn about whether the price of a food staple has been held steady or is rising steadily or is rising seasonally and also annually (we never see prices and trends going downwards).

But this is not enough. We need also to examine whether these indices and price logs are describing what they are designed to in the same manner and – very much more important – whether their descriptions are reasonable or not.

In the two chart panels, I have plotted the descriptions for arhar/tur dal from several sources together. The left chart has solid coloured price lines from the Department of Consumer Affairs and from the Directorate of Economics and Statistics. Each has two lines, the higher at the 90th percentile and the lower at the 10th percentile of all monthly prices logged from 2009 January until 2014 June. The two dashed lines are indices – the wholesale price index for arhar/tur and the Labour Bureau’s retail price index for arhar/tur over the same period. The price logs are plotted against the left index and the price indices are plotted against the right index.

Between the two indices the WPI for arhar appears lower than the Labour Bureau index, but that has only to do with a difference base period. The overall pattern they describe is the same. The two sets of price logs shows the two different levels for the 90th and 10th percentiles – in both cases the prices recorded by the Directorate of Economics and Statistics are higher than those recorded by the Department of Consumer Affairs. However they all follow a similar pattern over the 66 months illustrated here.

And so to the question: how true is what these indices and price logs are describing?

The answer is in the right chart. Here, two more lines are seen. These are both ascending relatively evenly over the 66 months, one at a slightly steeper rate. These I have called the ‘real retail’ price lines, one low and the other high. They describe the prices paid by urban consumers for a kilogram of arhar/tur dal based on what has been charged by ordinary retail outlets in towns and cities, with the price readings collected informally. They have also been ‘straightened’ by applying a 12%-14% true inflation that has been experienced by urban food consumers over these 66 months.

The effect, as you can see, is startling. The ‘real retail’ price lines explain why the consumption of pulses has been dropping and continues to drop especially amongst urban households whose livelihoods depend on multiple informal jobs. At Rs 90 to Rs 110 per kilogram, this dal (like other pulses) is almost beyond reach. At Rs 120 to Rs 130 per kilogram – these are levels that began to be recorded by consumers, but not consistently by the government price monitoring agencies, even two years ago – the dal can be consumed only by the upper strata of the urban middle class.

The question that immediately arises is: why is the real food price inflation being experienced by consumers not reflected in the official food price logs and indices? I will take up this question in the next posting.

The alarming tale of food prices, from 2004 January to 2013 August, that have squeezed the household budgets of cultivators and rural labourers.

For most of 2013, the central government broadcast, through important cabinet ministers and official statements, its worry about economic growth, that every effort must be made to steer India back towards a high economic growth rate. In the food and agriculture sector, that effort has led, in the last four to five years, to a gulf in growth rates between agriculture and the combination of processed and packaged foods and beverages (which the food retail industry is being arrayed around). While the agriculture sector (including fisheries and livestock) has been growing at or just above 4% a year for the last several years, the processed foods and beverages industry has been growing at around 15% a year.

The effects of this growth (setting aside criticisms of how such growth is measured) in both these allied sectors – the one much larger but the other which is a feature of urbanising India – may be seen in the transformation of cultivation and of food. That is why, not only has the consumer price index for rural citizens climbed without let every year for the last nine years, there is evidence in this index data to show that the rate of increase has accelerated in the last few years.

The trend we have all become painfully familiar with, in states and towns measured and unmeasured.

The consumer price index for agricultural labourers (usually abbreviated to CPI-AL) from 2004 January to 2013 August shows a steady rise for all the 20 states in the set (see the chart alongside). Compiled by the Labour Bureau, Ministry of Labour and Employment, the data shows that the average CPI-AL of these states has been rising around 50 percentage points a year for the last four years. Using quarterly averages (taken for June, July and August) for 2013, 2012 and 2011 and comparing them with the same averages a year earlier, we see that the all-India increases in the index for 12 months (2013 over 2012) is 12.96%, for 24 months (2013 over 2011) is 22.68% and for 36 months (2013 over 2010) it is 34.08%.

States that experienced the steepest increase in the CPI-AL over 36 months are Gujarat with 32%, Punjab 32.4%, Odisha 32.5%, Rajasthan 35.1%, Maharashtra 35.3%, Manipur 37.6%, Andhra Pradesh 37.9%, Kerala 38.4%, Tamil Nadu 39.2% and Karnataka 48.2%. That is why we have witnessed the widespread trend of migration by rural populations towards smaller urban agglomerations, with the impacts recorded in various data releases from Census 2011.

The Labour Bureau data contains evidence that for all states which have CPI-AL measured, the rate at which the index is rising is accelerating. This acceleration is visible when the period 2004 January to 2013 August is divided into five phases. These are represented by the circles in the illustrated chart (the main image above), the phases 2004 Jan to 2005 Dec, 2006 Jan to 2007 Nov, 2007 Dec to 2009 Oct, 2009 Nov to 2011 Sep and 2011 Oct to 2013 Aug). These points (five for each state) are plotted against not the ordinary scale of the CPI-AL but against a range of point increases in the CPI-AL. Hence this shows the rise in the CPI-AL and the more recent speed of that rise.

They say the prices are cyclical, like they are for all vegetables. They say India grows enough vegetables to provide for our growing population and we have enough surplus to export. Well, if that’s so, then why does a kilo of tomatoes today cost fifty rupees? A few phone calls and visits to local grocery shops (not the supermarkets) confirmed that today, in Bangalore, Mumbai and New Delhi, tomatoes sold for Rs 45 to Rs 55 a kilo.

Sauce and ketchup every which way you look in sizes from 90 grams to 1 kg – that’s where India’s tomatoes are going.

The chart above illustrates the price of a kilo of tomatoes in India’s urban centres between the first week of July 2010 and the third week of October 2013 – tomato prices have been recorded for 59 urban centres over 173 weeks. To simplify what is otherwise a maniacal tangle of individual threads (see chart below) I have taken a median price, and urban price at the 80th and 20th percentiles, which together describe the overall movement and variation well enough. The cycles are indeed visible – they are roughly 40 weeks long.

Tomato prices recorded for 59 urban centres over 173 weeks.

But the cycle changed from the first week of April 2013, when the prices of a kilo of tomato rose more steeply than before. And from the first week of August 2013, tomato prices have settled at a new plateau significantly higher than at any time in the last three years.

Why has this happened? The growth of the processed foods industry is the main cause – this industry sector has for the last three years grown (in value) at around 15% per year, which is greater than the GDP ‘growth’ and greater than the growth in value recorded for agriculture in general. For tomatoes, this means that every quarter, more tomatoes exit the stream of tomatoes that would otherwise go to home kitchens and instead enter factories, there to be turned into sauce, ketchup, purée and powder (which you find as flavouring even in those awful noodle ‘tastemaker’ sachets and cup noodle containers). These thousands of tons will become available as packaged and processed goods (the better to accompany the acres of super-fattening industrial pizza being baked every day) and this means less, per capita or per household, is available as primary produce that can be used in kitchens at home.

This group of ten charts describes the trends over more than seven years of the food, and the fuel and light components of the consumer price index numbers for agricultural labourers. The data has been taken from reports issued by the Labour Bureau, Ministry of Labour and Employment, Government of India.

This group of charts describes the trends of two indexes – food, and fuel and light – for agricultural labourers in ten states. The consumer price index (CPI) that is usually invoked by the government, by industry, by the corporate associations (such as chambers of commerce), and by economists and banks is a number for that month considered to be ‘national’.

This has no meaning, for what you and I buy is not at a ‘national’ market but at a local one – we may even buy from a roving street vendor, provided our municipal corporation or council has the sense not to outlaw these vendors (which sadly is discrimination common in metropolitan cities).

A consumer price index, in order to be of any use, must be local, and must relate to those who can set some store by it. That is why it is most useful to look carefully at what CPI includes, and it does include much detail, which this small group of charts helps reveal.

The consumer price index numbers for agricultural and rural labourers (with a base of 100 fixed to the year 1986-87) is calculated by the Labour Bureau, Ministry of Labour and Employment, Government of India. Who are agricultural labourers? The Bureau’s definition is: “Agricultural labour households – the rural labour households, who derive 50 per cent or more of their total income from wage paid manual labour in agricultural activities, are treated as agricultural labour households.”

According to the Bureau, a person is considered an agricultural labourer, if she or he “follows one or more of the following agricultural occupations in the capacity of a labourer on hire, whether paid in cash or kind or partly in cash and partly in kind” and the occupations are: farming including cultivation, growing and harvesting of any agricultural commodity; production, cultivation, growing and harvesting of any horticultural commodity; dairy farming; raising of livestock, bee-keeping or poultry farming; any practice performed on a farm “incidental to or in conjunction with the farm operations” (this includes forestry, market-related activities such as delivery and storage, and the actual movement of produce to markets).

The collection of rural retail prices every month from shops and markets is done by the Field Operations Division of the National Sample Survey Office (NSSO). In 20 states it collects data from 600 representative sample villages every month, with one-fourth of the sample being covered every week. Prices are collected either on a market day (which is most commonly a set day of the week) for those villages that do not have daily markets, or on any day for those that do.

And here we have – for Andhra Pradesh, Uttar Pradesh, Maharashtra, Madhya Pradesh, Tamil Nadu, Rajasthan, Karnataka, Gujarat, West Bengal and Bihar, ten of India’s most populous states – the proof of how much India’s growers of food are burdened by the rising price of fuel and light (that means of electricity and power, diesel, kerosene and coal) and of food (cultivators and food growers also buy what they do not grow or husband).

Let’s get the definitions out of the way first. The Consumer Price Index for industrial workers in India is compiled by the Labour Bureau of the Ministry of Labour and Employment. These Consumer Price Indices measure the changes in the level of retail prices of a fixed set of goods and services consumed by an average working class family. The retail prices are collected from 78 cities distributed through practically all states and regions.

These indices are used for fixing the wages and the dearness allowance (a vintage term, used to calibrate a flexible allowance so as to allow salaries to adjust to goods having become more ‘dear’, or expensive) of millions of workers and employees in India. These indices also serve us as important indicators of retail price movement in India.

The trend is clear. These representative worms show the 20th, 40th, 60th and 80th percentiles of the indices for the 78 cities. The acceleration from around July-September 2009 is visible.

How are these prices collected and from where? As the Labour Bureau has explained, popularity, amongst customers, is the main criterion for selecting shops. The selection process includes “observation of the shops during peak business hours by a team of field officers of the Labour Bureau and interviews of the local workers”. (It sounds very systematic and thorough but, given the miserly budgets available, I doubt whether the Ministry of Labour is able to afford the people required to do this carefully and regularly; still, it’s the best we have.)

For each item or service, two selected shops and two reserve shops are listed. This is because, if the price of an item (such as wheat flour or jaggery) cannot be collected from the ‘selected shops’, then the prices are collected from the ‘reserve shops’. And if prices cannot be collected even from the ‘reserve shops’ then any other shop in the market will do!

The difference, or the 80-20 variation, between the indices of cities in the fifth fractile and the first. The question is: why has the variation increased in the last three years and who has gained from this increase?

What the detail of the chart above shows is the worm-like crawling, ever upward and steeply, of the 78 individual trendlines of the Consumer Price Indices (for industrial workers). What we see is that from 2009 July, the variation within the band increases, and increases at a rate greater than the period 2006 Jan to 2009 July.

Which are the cities in which the CPI-IW has increased more sharply in the latter period, that is, 2009 September to 2013 March, than in the earlier period, 2006 January to 2009 September? Mumbai and Nashik (Maharashtra), Ahmedabad, Bhilai (Chhattisgarh), Vishakhapatanam (Andhra Pradesh), Vadodara (Gujarat), Salem (Tamil Nadu), Pondicherry, Jabalpur (Madhya Pradesh), Jalandhar (Punjab), Chandigarh, Surat and Bhavnagar (Gujarat), and Hubli-Dharwad (Karnataka) have all seen steeper increases in the CPI-IW – between 5% and 10% more – in the last three years than in the first three years.

In Rajkot (Gujarat), Durgapur (West Bengal), Ernakulam (Kerala), Madurai (Tamil Nadu), Jamshedpur and Jharia (Jharkhand), Chennai and Tiruchirapally (Tamil Nadu), Ajmer (Rajasthan), Coonoor (Tamil Nadu) and Mysore (Karnataka) the rate of increase in the CPI-IW has been 10% to 20%. And in Quilon and Mundakayam (Kerala) and Haldia (West Bengal) the rate of increase has been more than 20%! Hence we see very clearly that the effects of the 2007-08 global food price spike was experienced by labour and consumers in India’s cities, but that in many of these cities, the food and general inflation over the last three years has been even more severe.

This chart traces the trends of the wholesale prices of ten major food and crop groups in India. The data is from the Office of the Economic Adviser to the Government of India, which is a part of India’s Ministry of Commerce and Industry.

The cereals group has from early 2012 risen relatively more steeply than it has from the beginning of the period described by the chart. The pulses group has gone through three peaks (late 2006, late 2009-early 2010 and mid-2012) that have led to successively higher base levels. (In the panel below, these groups are coloured to distinguish them from the rest.)

The eggs, meat and fish group has accelerated from about mid-2009, rising fairly steeply for about a year-and-a-half and then steadily thereafter. The vegetables groups shows the distinct cyclical nature of prices, with nine peaks erupting from a steady upward trend (the last being in mid-2012).

The other groups – fruit, milk, spices, tea and coffee – help us understand the causes for the overall rise in food price inflation experienced by the consumer and also the changing market prices for crops in the fibres (6 components) and oilseeds (11 components) groups. [You can get a zipped set of these charts here.]

We have from the FAO this month (that means February 2013, released in March), the updated FAO food price index coinciding with its Crop Prospects and Food Situation. This dual release gives us the opportunity to look at the interplay between the FAO food price index and its cereals sub-index, what the ‘Prospects’ quarterly has said about cereals worldwide, and what recent index numbers seem to be telling us.

First the tale of the unfiltered numbers. The FAO Food Price Index averaged 210 points in February 2013, unchanged from January but – FAO points out with what sounds to me like mild relief – “five points (2.5%) below the corresponding month last year”. More interesting is the observation by the food price indexers that “since November the Index has moved within a narrow 210-212 point range, as increases in the prices of dairy products and oils/fats were largely balanced out by declines in the prices of cereals and sugar”.

The usual blue pair

If you dwell awhile on the chart I have made for just the cereals sub-index of the FAO food price index (above left), which traces the journey of this sub-index from 2008 January, you will see that from 2008 July it plunged and stayed low (relatively for this period) until 2010 June, and then the ascent to the 230-250 level was steep. And there it has remained. The short red line describes a cumulative average for the 12 months until 2013 February, and the trend for this ‘alarum’ (I am partial to medieval English) is quite clear, forsooth.

Since we have discussed earlier what the FAO food price index in fact describes, which is not what food consumers pay for their daily several hundred grams (if that, sadly) of staples, this does to me look like we can read a plateau as signalling persistent high and rising true cost of food to consumer. Perhaps I should petition the folks inside that citadel on Rome’s Viale delle Terme di Caracalla to rename their index into an indicator.

“FAO’s first forecast for world wheat production in 2013 stands at 690 million tonnes, representing an increase of 4.3 percent from the 2012 harvest and, the second largest crop on record after that of 2011. The increase is expected mostly in Europe, driven by an expansion in area in response to high prices, and a recovery in yields from below-average levels in some parts last year, notably the Russian Federation.”

Cereals production in Asia

Elsewhere in Europe, we have been told, prospects are satisfactory in the Russian Federation (a big jump, as the chart shows). In neighbouring Ukraine, a large recovery in wheat output is forecast. In North America, the outlook in the USA has been diplomatically called “less favourable than among the other major wheat producing countries” (makes me wonder if the Prospects authors have been fraternising too frequently with UNFCCC staff). Perhaps they haven’t yet noticed the US Drought Monitor, which may explain the “aggregate wheat output is tentatively forecast to decrease” for the USA.

In Asia, the Prospects expects “a record wheat output of some 121 million tonnes in 2013” in the People’s Republic (of China, newly minus Wen Jiabao as premier). It also expects “a record wheat output” in Pakistan and “another bumper crop” in India (what will that do to the already mountainous central stocks of cereals?). Australia and wheat can be summarised (by me, not them) in a word: uncertain.

It isn’t easy, not with 468 cities and urban agglomerations whose populations are more than 100,000 – how many of their markets can be reliably covered? There are 236 with populations of between 100,000 and 200,000.

From there to 300,000 there are 79, from there to 400,000 there are 35, from there to 500,000 there are 22, to 600,000 and then to 700,000 there are 13 each, then up to a million there are 17, from there to two million there are 34, from there to five million there are 11, and five million and above there are eight.

How can any agency deal with such a spread, variety in typologies of urban growth, speed of growth, differences in income strata, and hope to be somewhat uniform and at least reasonably regular in the collection of price data? No one agency can, and not even a set of them can.

Still, to understand how prices are arrived at (“discovered” is the term the commodities futures markets like to use, but such use is far from innocuous and more than hurtful for the low-income households) and how they change over time we have to make use of what is available.

In India, price data is broadly classified into two categories: prices relating to bulk transactions and prices for small transactions (what the price collection agencies call ‘bulk transactions’ include wholesale prices and farm harvest prices).

What the price collection landscape in India looks like

Retail (or consumer) prices are small transactions – what the rural and urban (and migrant) household pays for a local food basket, for electricity, health care, education, clothes, transport, communication, durables and various services including banking.

So there are what the price monitoring and collection agencies call “customarily collected” prices and these are for items which are included in the typical consumer basket of goods of segments of population that have been terms industrial workers, agricultural labourers and rural labourers – and this is because there are separate consumer price indices computed every month for these three categories.

Several departments and agencies of the Government of India are involved in the collection of prices and their redistribution. Perhaps the most important but also the most frustrating (to find and use) is the Price Monitoring Cell of the Department of Consumer Affairs. It is important because the PMC collects and disseminates wholesale and retail prices of selected essential food items. It is frustrating because the website that delivers the data is frequently down. That’s apart from data gaps. But we have to work with what we have.

1. The Dawn of Pakistan has reported that “a global race for grain trading power is putting more of the world’s vital cereals in the hands of fewer companies, with a string of recent acquisitions raising fears that consumers will pay even more for their food, while farmers are squeezed”. The report said that Archer Daniels Midland last week bid for Australia’s last independent grain handler GrainCorp, the latest in a series of moves by grain trading heavyweights to grab a larger slice of a booming market as developing economies seek food security.

2. Nobel Prize winner Octavio Paz acutely observed that the invention of corn by the Mexicans is only comparable to the invention of fire by the early humans, according to this report from Voxxi. “From the inedible grass of the teocintle or teosinte, ancient Mexicans created modern corn, which was spread across Mesoamerica and eventually around the world.” The report said that the 60 or so breeds and the thousands of different varieties native to Mexico act as a genetic reservoir and a crucially important strategic good in terms of the global food supply and economy.

3. “Hunger and revolutions have always gone hand-in-hand, of course — the latter is what happens when you let them eat cake but the people have no bread,” explained this blog on Reuters. But at which point do prices pass the point of no return? Their research has found that food riots are most likely to occur when the FAO Food Price Index rises above 210. “Recognising the dangers of food speculation, six European banks – including Commerzbank, Germany’s second largest – this summer removed agricultural products from their commodity funds altogether. Wall Street, however, has not been so accommodating.”

4. Food security levels declined in 98 out of 105 countries between June and September because of rising food prices, according to updated data from the Economist Intelligence Unit and reported by Bloomberg Businessweek. The score for affordability of food dropped to 50.5 on a scale of 100 from 53.2 previously, an EIU researcher told the business magazine. Hungary, Brazil, Argentina and Russia had the biggest drops in affordability of food on a combination of economic weakness and inflation, the unit wrote. Global food prices have advanced 7.7 percent from June, according to the EIU. Among the most undernourished countries, the biggest drops in food affordability were recorded in South Africa, the Dominican Republic, Guatemala and Botswana, according to the report.

5. The countries with the highest burden of under-nutrition, responsible for as many as 2.6 million child deaths a year, are the most exposed to food price spikes, reported The Guardian. They tend to be net importers of food, and have citizens who spend 30-60% of their income on food. When prices go up, poor people take their children out of school and prioritise foods that provide energy over nutrition. A relatively short spike can have long-term effects on the development and potential of children.

6. In August 2012, three of the eight “livelihood zones” in Burundi – around 200,000 people – were found to be at a “crisis” level of food security, or Phase 3 in the Integrated Food Security Phase Classification scale, said this All Africa report. This was variously due to recurrent drought, plant disease, poverty, lack of drinking water and land scarcity. Most of the rest of the country is in Phase 2 – also classified as “stressed” – with a risk of falling into Phase 3 “at the slightest shock”, such as flooding or hailstorms, according to Isaac Nzitunga of the Ministry of Agriculture. More than 60 percent of the population in the tiny, densely populated central African state, one still recovering from a 1993-2005 civil war which killed some 300,000 people and uprooted more than a million others, is at risk of food insecurity. Some 58 percent of children are chronically malnourished, which means their physical and intellectual development is seriously threatened.

This chart, using data from the FAO food price index and considering the period 2006 Jan to 2012 Sep, shows the four sections of price plateaus, with the longest – and most severe – being what we are experiencing now.

In this chart I have divided the period from 2006 January till 2012 September into four sections. These four sections represent different phases of the global food price rise and consequent levels of persistent food price inflation. As with all price series movements, the sections flow into and from one another, but with the five components taken together (I have omitted the sugars index, so these five are food, cereals, oils, dairy and meat) the sharp upward and downward gradients become visible. These differences help find the four different sections of prices over the last six years and nine months.

Index close-up: 2007 May to 2008 Nov

Most conspicuously, what is immediately clear from the main chart is that the current period of high food prices (and high levels of food price inflation coupled with volatility in global, regional and local food markets) began in 2010 June and established a new set of plateaus by 2010 August. It is now therefore two years of such a plateau, and the worrying indications are that, as happened in 2009 August and September, we may be on the cusp of an even higher upward movement of prices.

Index close-up: 2010 Jun to 2012 Sep

The thin lines representing averages for the five separate index components (four plus the main food index) are visible for each of the four sections. These provide more evidence of the higher overall index and graphically show the very worrisome duration of the current elevated plateau of prices – the averages for the 2010 June to 2012 September period are higher than the averages for the 2007 May to 2008 November period. Thus the optimistic pronouncements by FAO on the monthly variation in its index – such as this month’s “the FAO Cereal Price Index is 7 percent higher than in the corresponding period last year but still 4 percent below the peak of 274 points registered in April 2008” – fail to present the context, that it is not how far below the 2008 peak but how much the current average is higher than the 2007-08 average that matters.

Indeed, using the FAO food price index data released early in 2012 October (covering the period till 2012 September) this may be the FAO confirmation of the signal that the widespread droughts of 2012 have begun to affect food prices even at this already elevated level. It is all the more worrying since, in the period since 2006 January and which includes the 2007 May to 2008 November period, this is the longest period of sustained high food prices recorded by the FAO food price index. These are the long-term signals that are not conveyed by FAO’s standard monthly chart, which you can see here.